Southwest posts $152 million quarterly profit on strong traffic

DALLAS — Even with a tough economy and high jet fuel prices, Southwest Airlines Co. made money in the fourth quarter and could do better this year.

Travel demand was strong enough in the final three months of 2011 for the carrier, easily the busiest at McCarran InternationalAirport, to keep planes nearly full and raise fares.

Through November, Southwest has served 14.69 million passengers at the local airport, an increase of 1.7 percent from the previous year.

The carrier’s fourth-quarter net income rose 16 percent to $152 million, and profit was slightly higher than analysts expected. Revenue jumped to $4.11 billion.

CEO Gary C. Kelly said he expects strong revenue in the first quarter too, based on passenger-booking trends.

People travel more when the economy is strong, and there are signs that growth is recovering from the 2007-2009 recession.

Auto sales picked up late last year. U.S. factory output rose sharply in December. And the stock market is up — the Dow Jones industrial average has gained 3 percent so far in 2012.

“2012 is going to be better for Southwest. It’s going to be a good year for the airline industry,” said Ray Neidl, an analyst with Maxim Group LLC. “The airlines can double their profitability” over 2011.

Neidl said that’s possible — even with just modest economic growth — because airlines are limiting flights, which keeps planes full and lets them raise fares.

In the fourth quarter, Southwest filled more than 80 percent of its seats, an unusually high percentage. And the average passenger paid a fare of $140.18, up 10 percent from a year earlier when including price increases at its AirTran Airways subsidiary.

At Southwest and most other airlines, the biggest challenge to making money will be high jet fuel prices.

Southwest paid 34 percent more at the pump to fill its fleet of Boeing 737s, and its fuel tab came to $1.49 billion for the final three months of the year. Fuel averaged $3.29 per gallon.

And there’s little relief in sight. Southwest expects to spend $3.35 per gallon in the first quarter, up 14 percent from the same period last year.

Southwest tries to protect itself from fuel price spikes by hedging — in effect, locking in some of its fuel spending at guaranteed prices.

All of Southwest’s increase in fourth-quarter net income came from gains on fuel-hedging contracts. Without those one-time gains, Southwest’s adjusted profit was $66 million, or 9 cents per share, down from $115 million, or 15 cents, a year earlier.

Still, the results beat analysts’ prediction of 8 cents per share, according to FactSet.

Southwest shares rose 30 cents, or 3.3 percent, to $9.32 in midday trading.

With the addition of AirTran Airways, which Southwest bought last year, revenue rose to $4.11 billion.

Southwest paid $1.4 billion for AirTran, which allowed it to expand into Atlanta, Mexico and the Caribbean, but it said Thursday that the cost of combining the two airlines will end up at $500 million. The company said it saved $80 million in overlapping expenses in 2011 and expects the annual savings to go much higher.

Southwest, which carries more passengers in the U.S. than any airline, was the first major U.S. carrier to report fourth-quarter results. United Continental Holdings Inc., Delta Air Lines Inc. and US Airways Group Inc. will release their figures next week, and analysts expect all three to show operating profits for the usually weak fourth quarter.

AMR Corp.’s American Airlines is expected to report a loss and to keep losing money in 2012. The company filed for bankruptcy protection in November and has begun trimming marginal flights, which could push some travelers to its more-successful competitors.

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